BILL ANALYSIS �
SB 804
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Date of Hearing: June 27, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 804 (Corbett) - As Amended: June 6, 2012
SENATE VOTE : 22-13
SUBJECT : Health care districts: transfers of assets.
SUMMARY : Requires health care districts, when transferring 50%
or more of the district's assets to a nonprofit corporation, to
include in the transfer agreement the appraised fair market
value from an independent consultant, as specified, and adds in
several other requirements related to transfer agreements.
Specifically, this bill :
1)Requires health care districts, when transferring 50% or more
of the district's assets, to include in the transfer agreement
the appraised fair market value from an independent consultant
with expertise in methods of appraisal and valuation and in
accordance with applicable governmental and industry standards
for appraisal and valuation.
2)Requires the appraisal included within the transfer agreement
that is used to determine the fair market value to be
performed within six months preceding the date on which the
district approves the transfer agreement.
3)Requires the resolution submitted to the voters before the
district transfers 50% or more of the district's assets to
identify the asset proposed to be transferred, its appraised
fair market value, and the full consideration that the
district is to receive in exchange for the transfer.
4)Provides that the bill's provisions shall only apply to
transfers made on or after the effective date of the
legislation.
EXISTING LAW :
1)Establishes the Local Health Care District Law which
authorizes communities to form special districts to construct
and operate hospitals and other health care facilities to meet
local needs.
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2)Authorizes a health care district to transfer, for the benefit
of the communities served by the district, any part of its
assets of the district to one or more nonprofit corporations
to operate and maintain the assets. Prior to the district
transfer, requires the district board to submit a measure to
the voters of the district proposing the transfer.
3)Authorizes a district to transfer, at less than fair market
value, any part of the assets of the district to one or more
nonprofit corporations to operate and maintain the assets, if
the transfer benefits the communities served by the district.
Requires that for a transfer of 50% or more of a district's
assets to be deemed to benefit a district's communities, a
district must:
a) Fully discuss the transfer agreement in at least five
properly noticed public meetings before the district
board's decision to transfer the assets;
b) Provide in the transfer agreement that the district must
approve all initial board members of the nonprofit
corporation and any subsequent board members as may be
specified in the transfer agreement;
c) Provide in the transfer agreement that specified assets
are to be transferred back to the district upon termination
of the transfer agreement;
d) Commit the nonprofit corporation, in the transfer
agreement, to operate and maintain the district's health
care facilities and its assets for the benefit of the
communities served by the district; and,
e) Require, in the transfer agreement, that any funds a
corporation receives from the district be used only for
specified activities that would further a valid public
purpose if undertaken directly by the district.
4)Requires the district to report to the California Attorney
General (AG), within 30 days of any lease of district assets
to one or more corporations, the type of transaction and the
entity to whom the assets were leased.
FISCAL EFFECT : None
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COMMENTS :
1)SB 1771 (Russell and Kopp), Chapter 1359, Statutes of 1992,
defines the terms and conditions under which a district may
transfer any part of its assets to one or more nonprofit
corporations, including the requirement that the transfer must
be for the benefit of the community served by the district,
provides for the transfer back to the district of the assets
at the end of the lease, and requires approval by a majority
of the voters in the district if the transfer is of 50% or
more of the district's assets.
2)Districts were formed under state law to meet local health
needs not satisfied by other health care resources or
government programs in a given geographical area. Districts
formed pursuant to state law are financed by assessments on
real and personal property within the district. A 2006 report
published by the California HealthCare Foundation found that
85 health care and hospital districts have been formed in
California since the first hospital district enabling
legislation was passed in 1946.
Districts operate medical facilities, including hospitals,
public health clinics, and skilled nursing facilities. Some
also provide community-based education programs to the
residents of their districts. Given the volatile health care
market in recent decades, districts have contemplated service
changes, leasing arrangements, and affiliations with both
nonprofit and for-profit health care corporations as a means
of providing health care services to residents.
Responding to changes in health care delivery, districts explore
economic and organizational alternatives, including leasing or
selling their assets to nonprofit corporations or even to
for-profit companies. If a district wants to transfer 50% or
more of its assets to any corporation, the transfer needs
majority-voter approval from the district board.
3)According to the author, this bill is intended to provide the
public with more information about the value of district
assets that are proposed to be sold or transferred to one or
more corporations for less than fair market value. The author
argues that unfortunately, in too many cases, these transfer
agreements end with assets being transferred out of the
district to the benefit of the contracting private corporation
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and to the detriment of the local community. The author
maintains that of the 85 districts that have been formed since
1945, almost a third have closed, leased, or sold their
hospitals. Some, according to the author, have declared
bankruptcy and many have changed or expanded their historic
role as providers of acute care. This bill, the author
asserts, addresses the growing concern that some districts are
entering into contracts that reduce the district's assets and
financial security.
4)This is not the first attempt at requiring further information
as part of the transfer agreement for health care districts:
a) SB 134 (Corbett, 2011), was substantially similar to the
provisions of this bill. SB 134 was amended to delete
these provisions in the Assembly.
b) SB 1240 (Corbett, 2010), would have imposed conditions
on contracts between districts and other entities to
operate one or more health facilities owned by the
district. SB 1240 was vetoed by Governor Arnold
Schwarzenegger, who stated that SB 1240 would have limited
the discretion of a district when entering into a contract
with another operating entity and would have created the
unintended consequence of reducing the incentive for such
arrangements when hospitals are struggling to remain open.
c) SB 1351 (Corbett, 2008), would have required voter
approval before a district can transfer, for the benefit of
the communities served by the district and in the absence
of adequate consideration, any part of the assets of the
district to one or more nonprofit corporations to operate
and maintain the assets, as opposed to 50% or more of the
district's assets. SB 1351 would have also expanded the
AG's ability to review and comment on proposed transfers
and prohibited a district from relinquishing its membership
on the board of a nonprofit corporation to which the
district has transferred or leased its assets without a
vote of the district electorate. SB 1351 was vetoed by
Governor Arnold Schwarzenegger, who stated that he could
not support placing additional restrictions on a district,
especially when they are elected by, and accountable to,
their local community.
d) SB 460 (Kelley), Chapter 18, Statutes of 1998,
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permitted, until 2001, a district to transfer at fair
market value its assets to for-profit corporations, as
specified.
e) SB 1508 (Figueroa), Chapter 169, Statutes of 2000,
extended the authority for districts to transfer or lease
assets to a for-profit until January 1, 2006.
f) AB 1131 (Torrico), Chapter 194, Statutes of 2005,
extended the January 1, 2006, sunset date to 2011,
permitting districts to transfer or lease assets to
for-profit corporations, as specified.
5)Support arguments : The California Nurses Association (CNA)
writes in support that this bill gives the public important
information about the value of health care district assets
that are proposed to be transferred to an outside entity for
less than market value. CNA maintains that this information
is crucial because health care district assets are public and
are owned by the residents of the health care district.
Opposition arguments : None on file.
6)This bill was double-referred to the Assembly Health Committee
and heard on June 12, 2012. The bill passed on a 14-4 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
California Nurses Association
Opposition
None on file
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958